Follow the Money When You Rescue Detroit’s Big 3

People throughout the Midwest are stunned by the barrage of questions hurled at the captains of the automotive industry by Washington insiders, but there is a question that hasn’t been asked that probably should be: Where is the money going to go?
All three Detroit companies argue that they are the engines behind a huge supply chain of companies that forms the backbone of the U.S. manufacturing base. And while that still has some truth, the fact is that GM, Ford and Chrysler have all been backing out of U.S. manufacturing for years.
Caught between the unrelenting cost pressure of foreign manufacturers and union, pension and health obligations that could take a generation to shed, Detroit’s original equipment manufacturers, or “OEMs” have enthusiastically embraced the strategy of sourcing parts from low-cost countries. They started in Mexico, but over time, they have pushed suppliers to eastern Europe, China and other Asian sources.
Three years ago Bo Anderson, General Motors vice president of global purchasing and supply, proudly announced that GM had increased the share of parts it sources from low-cost countries, saving from 20% to 30%. He said to GM’s supply base, “if you are a world-class runner, your competition is global.”
Just last August, John Campi, Chrysler executive vice president of procurement, said Chrysler aims to cut supply chain costs by 25%.
In a way, the strategy of price-buying and low-cost-country sourcing has decimated and bankrupted the entire supply chain.  It is not difficult to understand that a bankrupt supply chain eventually worked its way up to the Big 3.
The key question that comes to mind as these executives prepare their plans to save the industry is: How much of the federal tax money will flow down the supply chain, and where precisely will it go?
Will the strategy of off-shore sourcing continue under the federal assistance? Members of Congress and others argued that funds shouldn’t be subsidizing job banks in America where people are paid for simply showing up. Should they instead be subsidizing factories in China, Russia or Vietnam?
Congress seems to be insisting that the industry restructure itself, but the way that is going now is by driving the automotive supply chain overseas. If the national interest in the automotive industry is to maintain and grow a domestic manufacturing base – how does that reconcile with the direction the industry has been heading for a decade?

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One response to “Follow the Money When You Rescue Detroit’s Big 3

  1. Bill,

    You make excellent points in your post. They make one wonder if it wouldn’t be more appropriate for these guys to go to the Chinese and other LCC governments with hat in hands. That would avoid any potential capitalism vs. socialism issues for our Congress. Plus the OEMs wouldn’t have to worry about not having plans – the LCC governments will gladly provide them!

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